Property owners in Portland, Oregon, have voiced their endorsement of the idea of creating a new and separate tax category for vacation rentals, which are currently categorized and taxed as B&Bs. Creating a new category would reduce the cost of obtaining a permit, subject vacation rentals to less stringent requirements than complete B&Bs, and allow the city to efficiently collect more taxes than they do currently. The reason most Portlanders are renting spare rooms illegally is that the current permit-requirements are simply too expensive and troublesome to comply with. If the city creates a new, more lenient category, everyone wins: Many of those currently without licenses will have no reason not to obtain a permit, the reduced number of unlicensed businesses would even the playing field for those who currently have conditional-use permits, and the city’s increased revenue will allow for even application of the law, thus shutting down those remaining unlicensed homeowners that would operate illegally regardless of the creation of a new category. Let me know if I’m missing something here…
Peter Korn, “House rentals hide in shadows”
Business is good for Ann Skvarek and Jason Fayen, who own Clinton Street Guesthouse in a quiet Southeast Portland residential neighborhood.
The couple opened the bed and breakfast four years ago after their children left for college. Before opening they contacted the city and spent close to $5,000 obtaining a conditional-use permit. In addition, they pay a few hundred dollars each month for insurance to cover their in-home business and about $200 per year for their business license.
When guests rent a room for $100 they add on 12.5 percent for the taxes they are required to pay, and charge $112.50.
The couple wants it known they are not complaining. “We’ve both chosen to play by the rules,” Fayen says.
But Skvarek and Fayen feel they are competing for business against others with an unfair advantage. There may be as many as 1,000 Portland homeowners renting out rooms and homes through websites such as airbnb.com and vrbo.com who are not licensed and are not paying the required hotel/motel taxes.
Nearby, Joan (not her real name) would like nothing more than to play by the rules. In fact, renting her $54-a-night extra room on airbnb.com without a license and without paying the required taxes eats away at her so much that she says she’s thought of paying the 12.5 percent tax anonymously.
“I would be happy to pay a licensing fee. I would be happy to pay the tax,” Joan says. “I’m actually a very compliant with the law kind of person, and I believe in public services and paying for them.”
So why are Joan and hundreds of other Portlanders like her renting their extra spaces illegally? City code in Portland does not allow short-term vacation rentals in residential zones. Joan says she can’t afford to spend the $4,000 or more trying to get a conditional-use permit from the city to run a B&B. She’s retired and living on a limited income. Besides, she only has one extra room, which makes her a far cry from a full-on B&B.
“The answer is yes, it is unfair,” Joan says of her competing for out-of-town guests without a license. “And if it weren’t so ridiculously disproportionate to the amount of money I’m earning I would have done it (obtained a B&B license).”
Comply with local laws
Unlicensed short-term vacation rentals may be Portland’s fastest growing business. Laurelhurst resident Bob Low, who rented his basement studio through airbnb before the city forced him to stop, tracks listings and says vacation rentals in Portland have tripled in the past few years, to more than 1,000. He knows others who rent via airbnb, and says very few pay the city and county taxes.
Low and others, including some who run B&Bs, say there is a solution that will satisfy people such as Joan as well as those who have obtained licenses and pay taxes. And, they say, it will produce more than $1 million in tax revenue for Portland and Multnomah County.
Low and Steve Unger, co-owner of the eight-room Lion and the Rose Bed & Breakfast in Irvington, say the answer is for city planners to catch up with the fast-changing economic picture and develop a separate license for vacation rentals. That new category would not require homeowners with smaller operations to meet all the requirements for a B&B, and would allow the city, county and state to start collecting their taxes.
“Why is the city not enforcing the code as it stands, or why don’t they change it?” asks Unger. “Recognize these places have a role to play and provide a way for them to license themselves at various levels so they can have some oversight and the city gets its hotel tax.”
Unger says the website rentals have severely cut into his B&B business. Yet he doesn’t want to shut them down. He does want to make sure they are safe.
None of the unlicensed rental units get fire and safety inspections, he points out.
“One day there’s going to be a fire or something else and on that day it will change,” Unger says.
In addition, Unger says, B&B permits require that an owner or manager live on site when rooms are rented to guests, but some websites, such as vrbo.com, are used by people renting their entire homes.
Mike Liefeld, enforcement manager for the Portland Bureau of Development Services, says that in most Portland residential neighborhoods, without a bed & breakfast license, homeowners can legally rent with 30-day minimum stays. Short-term rentals are not allowed.
But a check of websites shows that only a few homeowners are restricting their rentals to 30 days. And very few are adding the 12.5 percent taxes to their guests’ charges.
A spokeswoman for HomeAway, the parent company of vrbo, says its website is “a vacation rental marketplace” and “not a part of the financial transaction between the two parties.” Nevertheless, homeowners are encouraged to comply with local laws.
Heads in the sand
Homeowner Joan, who says she started renting her spare room on Craigslist.com before turning to airbnb.com, says she knows about a dozen others who rent out through websites, all for short stays, and all but one or two without conditional-use permits.
Joan says she approached the Bureau of Development Services about a permit but bureau officials told her she would have to put money up front before they could tell her the likelihood of getting a permit. Now, she rents her room about 15 to 24 nights each month, and even cooks breakfast for guests because she enjoys getting to know them.
As for the hundreds of homeowners who are renting their extra rooms via websites without city permits, Liefeld says, “I don’t think it’s even hit the Bureau of Planning and Sustainability’s radar screen.”
It has hit the radar screen of the Multnomah County Bureau of Assessment and Taxation, but only in a minor way. Officials there say the bureau is aware of the problem of uncollected taxes from short term rentals. Occasionally, a bureau investigator looks at websites in an attempt to make a case, but that is rarely successful because the websites don’t reveal owners’ names or addresses until a credit card has reserved a room.
Low points to a handful of cities that have adopted ordinances in recent years to license short-term rentals. In his opinion, the city’s policy encourages people such as Joan to break the law.
“Portland likes to hold itself out as being progressive,” Low says. “They are not progressive in regards to the short-term rental issue. They’re sticking their heads in the sand.”
Complaints snare only a few short-term rentals each year
Bob Low is feeling incredibly unlucky these days. He’s one of the few Portlanders who have had their short-term vacation rentals shut down by the city.
If an informal count of website listings is correct, as many as 1,000 Portland homeowners may be renting out extra rooms or their entire homes to vacationers — without permits and without paying taxes.
But Portland’s Bureau of Development Services, which enforces city code, operates a complaint-driven system. It only goes after illegal rentals when someone complains, and only a handful of complaints were made last year about short-term room rentals. Which leaves Low thinking the system just isn’t fair.
Low’s problem, he thinks, is a neighbor with whom he has had a dispute about a tree hanging over both yards. Complaints to BDS are confidential, so Low has no way to know for certain who blew the whistle on his unlicensed short-term rental.
The bureau investigated, saw that Low and his wife, Sue Low, were renting through airbnb.com, and told him to either apply for a bed and breakfast conditional-use permit or stop renting his basement studio on a short-term basis. If he didn’t, the city’s monthly fines would start at $270 and double after three months.
Low calls the city’s complaint-driven system a legitimized form of extortion.
“It’s uneven application of the law,” he says. “We have a neighbor who has an issue and they complain and we’re shut down.”
Mike Liefeld, BDS enforcement manager, says his bureau doesn’t have the money to search for illegal vacation rentals on its own.
“It’s a resource question,” Liefeld says.
With BDS short of resources, he adds, short-term vacation rentals are way down on the list of priorities. Liefeld says BDS received more than 8,000 complaints about code violations last year and only about 20 of them concerned rentals. Of those 20, only a few were about spare rooms being rented; the majority concerned whole-house rentals.
Liefeld says the fact that so few complaints are being made by neighbors upset by short-term rentals is evidence the complaint-driven system works.
“People are somewhat voting with the phone,” he says.
Low says an annual $100 short-term rental permit for homeowners could yield the city more than enough to fund an inspector to ensure that each rental is safe and that all renters are being dealt with equally.
And, Low says, the inspector also could ensure that everyone with a short-term rental is billing and paying local hotel/motel taxes that are mostly going uncollected.